Tax regimes are finally catching up to the rise in e-commerce.
The French government has approved the levying of a digital tax on Google, Amazon, Facebook and Apple (GAFA). French Finance Minister Bruno Le Maire says the “GAFA tax” is a matter of national sovereignty. “It is our responsibility to avoid the emergence of companies that would become private states, that would have all the privileges of states, without having the constraints and the surveillance which go with it,” he said. The tax stipulates that any company with digital revenues in excess of €750 million (US$838 million), and where €25 million of those revenues come from France, must pay 3% tax on their French turnover.
The tax is expected to add €400 million to the state’s coffers this year and €650 million in 2020. Beyond GAFA, companies like Meetic, which owns some of the biggest online dating sites in Europe, Airbnb, Instagram and advertising technology company Criteo could also be caught in the tax’s net.
So far, Amazon has been the tax’s most vocal critic and has refused to pay it, proposing instead to increase what French small and medium-sized enterprises (SMEs) pay to use its platform, Amazon.fr, by the same percentage as the tax increase (3%). In the end, these companies are likely to pass the increased cost on to consumers.
In July, finance ministers of the G7 countries reached agreement in Chantilly, France, on the GAFA tax and the global minimum taxation on companies.
Italy, along with France, Germany and Spain, have supported implementing a European tax on technology giants, on condition that the principle of “tax residence” of the companies is overcome.
The key objective is to avoid the transfer of profits to countries with lower taxation, which occurs mainly through the transfer pricing mechanism. Multinational groups often create a holding or subsidiary company in a country with less taxation, and transfer the profits of other companies in the group by artificially changing the price of intergroup transactions.